Plus, China is insisting the U.S. rollback existing tariffs before signing the phase one trade deal, manufacturing contracted more than expected in November, and Morgan Stanley says Roku is overvalued.
Stocks fell to start Monday with the Dow slipping 29 points, or 0.1%, at the open. The S&P 500 traded 0.2% lower, while the Nasdaq dropped 0.4%.
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China’s government wants tariffs rolled back as part of the phase one trade deal with the U.S., according to a tweet from the Global Times. The paper said that plans for the U.S. to scrape the tariff increases scheduled for December 15 would not be a suitable replacement for rolling back existing tariffs. China also issued new declarations in retaliation against the U.S. over the law signed last week by President Donald Trump supporting Hong Kong protesters, avoiding measures related to trade. Chinese Foreign Ministry spokeswoman Hua Chunying said Monday that U.S. military ships and aircraft will not be allowed to visit Hong Kong, and that China would be placing sanctions on several U.S. Human rights non-government organizations—including the National Endowment for Democracy, Human Rights Watch, and Freedom House—for having encouraged Hong Kong protesters to “engage in extremist, violent and criminal acts.” “We urge the U.S. to correct the mistakes and stop interfering in our internal affairs,” said Hua. “China will take further steps if necessary to uphold Hong Kong’s stability and prosperity and China’s sovereignty.”
President Trump said this morning that he is restoring tariffs on steel and aluminum imports from Brazil and Argentina. “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries,” Trump tweeted. The president’s action acts as retaliation against two countries that have become alternative suppliers of soybeans and other agricultural products to China, pulling market share away from rural voters, including farmers, in the U.S., a key constituency for Trump. Trump also urged the Federal Reserve to prevent countries from gaining an economic advantage from devaluing their currencies saying, “The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar.”
The House Judiciary Committee is set to hold its first impeachment hearing Wednesday morning. While Trump was invited to attend the hearing, the White House said this weekend that it won’t participate in the hearing. The House will also start to decide this week if it will bring articles of impeachment against the president, and it is expected that lawmakers will have the Intelligence Committee’s report on the Ukraine affair in the coming days.
Manufacturing contracted more in November than expected. The ISM manufacturing index was released this morning and showed a reading of 48.1 for November, compared to expectations of 49.4 and below October’s reading of 48.3. New orders slumped to 47.2, dropping 1.9 percentage points from October, while inventories dropped to 45.5, down 3.4 points from the previous month. The ISM report shows that manufacturing “is stuck in a mild recession with little prospect of a real near-term revival. This will weigh on job growth and capex over the next few months, to the point where we are not ready to rule or a further [Federal Reserve] easing in January,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Roku shares are down -17% this morning after Morgan Stanley said the stock is overvalued. “Roku continues to execute a sound strategy to capitalize on the shift to streaming. However, we believe there are risks to growth expectations not reflected in current valuation levels,” wrote Morgan Stanley analyst Benjamin Swinburne in a note. “It’s All Priced In. …Specifically, we think revenue and gross-profit growth slow meaningfully in ’20 and the multiple compresses.”
Stocks We’re Watching
Rekor Systems Inc (NASDAQ: REKR): Rekor shares are up nearly 17% in the last month after it was announced that the Maryland-based developer of vehicle recognition systems had signed a five-year licensing agreement with Canada’s ParkSmart Inc for its cutting edge iP360 Parking Ticket and Permit Management Software Suite. “We are excited to partner with Rekor and to offer their innovative iP360 parking and permit management solutions to our customers. Rekor’s solutions are robust and scalable, making it easy for us to set up new clients or adjust service offerings as needed,” said ParkSmart general manager Craig Peters. “Its compatibility with multiple handheld enforcement devices, along with its all-encompassing feature-set that allowed us to replace extraneous vendor expense, makes Rekor’s iP360 the go-to option in paring violation software.”